Interests: Capping the size of Britain's big government.
It is now firmly established that higher taxation depresses GDP growth by distorting economic incentives and penalising success. Most studies show that a 10 percentage point increase in the tax/GDP ratio cuts trend growth by 0.5-1.0 per cent per annum, making the cake smaller for all of us.
Neither does big government do particularly well in the field of welfare- dividing the cake up. Studies by the IMF, the ECB and elsewhere show that once government expands much beyond 30 per cent of GDP there is little further improvement in the major indicators of welfare other than crude income distribution. And the costs in terms of economic efficiency are high.
Britain’s government currently taxes and spends 40 per cent of our national income, and rising. It must be reduced, but the only way our politicians will do that is if we limit their area of unfettered discretion. We must impose clear rules to cap the size of government.
Gordon Brown’s major success as Chancellor was to surrender his discretion over interest rates. But he also introduced those famous Golden Rules to govern fiscal policy. It was a step in the right direction, and what we now need is an additional Golden Rule to cap the size of government- initially at 35 per cent of GDP, and ultimately at 30 per cent.
The new Golden Rule would force our politicians to make the real choices over what should be provided by the public sector, and what’s best left to the private.